Everyone is relatively lean on the inventory side, any fluctuation in prices causes a multiplier effect because of the lean inventory.

Ankit Miglani

Deputy MD

Uttam Galva

The market may not see huge fluctuation in steel prices going forward from current levels, subject to dollar-rupee remaining at relatively stable levels, says Ankit Miglani, deputy managing director, Uttam Galva . Though prices have already gone up by about Rs 3,000 per tonne month-on-month, it has primarily been on the back of exchange rate fluctuations, he says. In dollar terms the prices actually have not increased at all and end-user demand has been relatively muted, he adds.

Despite the price hike across products, it has not been fully absorbed so the domestic sales are not as per normal purchasing patterns, Miglani told CNBC-TV18. But on the exports side, on actual transaction basis there has been a huge opportunity because of the sudden drop in the value of the rupee, exports have suddenly become viable because the domestic market has not fully adjusted to the rupee fluctuation, he adds.

Miglani says though the company is running at 100 percent capacity utilisation, it is maintaining relatively lean inventories. "Inventories are not high because there is not a lot of confidence going forward in improvement in consumption compared to the existing capacity levels which prevail in India," he adds.

Below is the verbatim transcript of Ankit Miglani's interview on CNBC-TV18

Q: Just wanted to get a quick check on the price outlook and we have seen various prices have been increasing in the sector. Is it sustainable and what is the inventory level that you are picking up for the industry as a whole?

A: Well, prices have gone up by about Rs 3,000 per tonne month-on-month. This impact is primarily related to the fluctuations in the exchange rate, it is basically a pass on of all costs because costs have gone up because of the dollar-rupee parity. If you look at actual consumption in India and the actual demand we are not seeing any significant change or improvement. In dollar terms the prices actually have not increased at all.

So it is really a pass on of the exchange rate volatility that we have seen and we are still seeing end user demand is relatively muted. So we don't expect any huge fluctuation in prices going forward from current levels subject to the dollar rupee remaining at relatively stable levels going forward.

Q: Just focusing on the inventory levels what is the current inventory level for Uttam Galva in particular and what sort of capacity utilization are you working within your plants?

A: We are running at 100 percent capacity utilization, our facilities are fully operational, however, we are maintaining relatively lean inventories and this is true across the chain down to the end users as well. Inventories are not high because there is not a lot of confidence going forward in improvement in consumption compared to the existing capacity levels which prevail in India.

So everyone is relatively lean on the inventory side, any fluctuation in prices of course causes a multiplier effect because of the lean inventory. But overall the inventories are pretty tight and we don't expect any huge fluctuations going forward either.

Q: Getting back to that rupee depreciation factor that is playing out, what is your total debt as of now, out of that what is the percentage of foreign debt? Also you were looking at increasing exports and the Indian rupee would help that but what is the percentage that you are targeting?

A: We have a debt of around Rs 2,100 crore, we recently raised an ECB to convert some of that debt to dollars after taking RBI permission. This was a function of our export performance and we are one of the few companies to get the permission. This money came in at Rs 58 to the tune of about USD 230 million so that component is now in dollars and priced at Rs 58. Of course there is a huge interest saving on that portion ranging to about 8.5 percent so we are not too worried about that.

That said of course there will be some implication on long-term debt because of depreciation of the rupee and this is unhedged at this point.

Coming to the exports side on the actual transaction basis there has been a huge opportunity because of the sudden drop in the value of the rupee, exports have suddenly become viable because the domestic market has not fully adjusted to the rupee fluctuation. What that means really is although we have increased prices by Rs 3000 or so per tonne across products, it has not been fully absorbed so the domestic sales are not as per normal purchasing patterns. There is some hesitancy and during this period we are bridging this gap by exporting more.

So where we normally export 20-30 percent of our production, we are targeting in export of something around 50 percent immediately. This is going to be re-evaluated on a monthly basis depending on which market seems to be more viable at that point.

Q: At any point would you like to monetize the land that you currently hold in any way in order to possibly reduce debt etc for your balance sheet?

A: Certainly that is a long-term goal, there is a huge opportunity in that, our estimate is may be five-six years down the line our existing land bank should be able to liquidate all our debt and make us debt free. But this is not the time to exercise such an option, it is better for us we feel to wait till the market turns and is in a more liquid position. And at that point we will definitely look into monetizing these assets.

Q: The debt is around Rs 2,000 crore, the land that you have is around 250 acres?

A: No we have about 400 acres in Mumbai out of which may be 150 acres is unused. And we have land banks in other parts of the country as well so we are pretty confident that the value of the land will significantly outface the value of our debt going forward.

Q: Could you give us guidance for FY14 because the Q1 numbers weren’t very impressive. What is the guidance for the revenue as well as profitability?

A: Q1 was particularly depressed because of two factors, one is that there was a failure in dispatch because of the LBT strike in Maharashtra. Second, we were in the process of implementing a new software, now fully SAP compliant and that severely hurt dispatches in the Q1 that has put some pressure. Going forward, we will be at par or better than last year, we are running at 100 percent capacity and dispatches are normalised now. So we will be at least be at par to last year.

Uttam Galva stock price

On March 31, 2015, Uttam Galva Steel closed at Rs 45.40, up Rs 0.55, or 1.23 percent. The 52-week high of the share was Rs 91.75 and the 52-week low was Rs 40.65.

The company's trailing 12-month (TTM) EPS was at Rs 2.55 per share as per the quarter ended December 2014. The stock's price-to-earnings (P/E) ratio was 17.8. The latest book value of the company is Rs 90.11 per share. At current value, the price-to-book value of the company is 0.50.